The MD Proposition MD believes it has realised a gap in the market for a commoditised product that could cater particularly well for the SME market. The apparent paradigm shift away from the managed e-auction service towards the software-as-a-service (SaaS) model, that allows any company to run their own e-auctions, makes the basic concept very attractive to them. The traditional managed auction service had been considered a luxury product in the market, affordable only by those companies with significant areas of spend, whose cash flow would allow for a high level of investment for a medium-term return. However, by pricing in their cloud software at a level affordable to many SMEs, MD believes they can create their own market niche. Since very few companies had entered the e-sourcing market since 2001, there were very few companies in this industry who were in a position to radically adapt their company structure and strategy around the SaaS model. The teams of highly-skilled sourcing consultants recruited by all these companies would find themselves largely redundant in an SaaS company. Therefore it would take a very brave CEO to make the irreversible call to switch to a software model. By the end of 2010, only one dominant player, Ariba, had made the decision to focus on e-procurement SaaS when they decided to sell their sourcing services and business process outsourcing (BPO) services assets to Accenture for $51 million8 . Just 6 years earlier in 2004, Ariba spent $493 million to acquire the same outfit which at the time was called FreeMarkets9 . Despite the less-than-exemplary performance by Ariba, MD shared the vision that SaaS was the future of the e-sourcing market. MD had spent the last 3 months designing and developing their e-sourcing and e-auction software in-house to keep the start-up costs to a minimum. The software, written in Ruby on Rails, a platform shared by Twitter, Groupon and Shopify, was not innovative in terms of 44 feature/function, as they believed that 90% of e-auction needs could be catered for by the bare essentials, but was novel in the way it could approach and be positioned in the market. The MD unique selling point and mantra is that there is no e-auction software on the market offering a solution which combines the following characteristics: Easy to use (no training costs), Professional processes (ensures success), Transparent pricing (great value) MD, by offering a combination of the above features, feels it is uniquely placed to take eauctions to the next stage in their evolution. Not only can they build on the understanding already in the market place, which ironically is continually increased the more prodigious their competitors become with their managed e-auction services, but their software can also be marketed to any average purchasing professional by providing a very low barrier to entry with respect to cost, usability and best practice. The definition of the term average is any purchasing professional that has a decent grasp of e-procurement, spend analysis, RFQ compilation and supplier sourcing. MD recognises that by addressing the average purchasing professional, their software will not be suitable to the very large enterprises, for example the major supermarkets, that run complex, combinatorial e-auctions almost on a daily basis. MD made this decision early in their developmental phase to help focus their product yet sought to incorporate functionality to cater for 90% of the e-auction market. In addition to the reverse auction, the MD software can be used for forward auctions for activities such as asset disposal, where platforms like eBay lack the professionalism. MD intends to exploit such immature markets in order to maximise their revenue potential. Another prospective revenue stream identified by MD is to approach the purchasing consultancies and interim purchasing managers, as there is a clear overlap in their sales and marketing targets. Typically e-sourcing software would take many months to develop and would incur significant costs; hence it is major barrier to entry for the niche consultancies, of which there are thousands in the UK market alone. Instead consultancies and interims offer their skills, experience and resource as a service to assist their clients with reducing cost in their supply chain. However, due to the clear and highly competitive price level of the MD solution, consultancies could now be tempted into adopting the software into their own service offering to their clients. Not only would this help MD rapidly infiltrate the market through an affiliated network but it would also generate multiple revenue streams from selling either directly to the consultancies or indirectly to the clients they engage with. Very few competitors would be able to similarly perform this feat as they have their in-house consultants to take precedence. Notably, the majority of the MD marketing plans were focused on the private sector. The main reason was the lower barrier to entry. The public sector, whilst on the one hand has a huge market potential and has a vested political interest in e-auctions10, was on the other hand dominated by a handful of large organizations, such as BravoSolution and Due North, who were firmly embedded within the various public sector bodies on up to seven year contracts. It would take a huge overhead in terms of time, cost and resource to develop software that could compete in this market. MD took the decision that whilst the potential return could be significant, the risks involved were too great for a self-capitalised start-up. 45 MD also had great ambitions in the horizontal market. They stated their intentions of offering their solution to the consumer; a completely untapped market. Their innovative USP of ease-of-use, clear pricing and professional software would render their solution attractive to companies or individuals with a tender value as little as 20,000 to allow, for example, consumers to negotiate the price for their new conservatory or for re-roofing their house. Furthermore the software could cater for new initiatives for forward auctions such as property and estates. This potential for new business is vast and would only require new website designs with the same e-auction engine integrated into the back-end. One of the more unique features of the MD offering was their payment system. MD offered two payment structures, the first a Pay-As-You-Go type approach, which cost 1,000 per eauction, regardless of scale, complexity or value. The second was an Annual Licence model, which cost 5,000 per user and permitted an unlimited number of e-auctions. As the software could also be used as a paperless method of gathering in quotes, regardless of whether or not the user then goes on to run an e-auction, the Annual Licence also had further benefits in this way. What was unique about this system was not the pricing, but the way it was paid for. The payment method was transacted via a credit system, whereby 1 credit cost 10. Therefore to run one successful e-auction you would purchase 100 credits, which would then be expended when you invite your bidders to interact with your event. MD was keen to push the advantages that their customers would have from this approach. Firstly they believed it gave their clients flexibility to choose when and what to spend their money on. They were not tied into any monthly subscriptions and could simply purchase an e-auction, run the auction, then not use it again for a year. The credits also allow their customers to consolidate their purchasing and invoicing transactions, as they could bulk buy credits and gradually use them at each opportunity. The advantages of the credit system to MD was that the credits were purchased in advance, perhaps many weeks prior to the event being created, which greatly helps their cash flow. Secondly it allows them to develop add-ons for their software, which could then be sold for additional credits. Thirdly, MD could design various marketing campaigns that could bring in leads enticed by the offer of say 20 free credits towards their first event. Once MD grows in size, the campaigns could grow accordingly, such as 30 credits to the company that runs the most valuable e-auction each month. Phil Willcot enjoyed discussing the ambitions and ideas of the MD directors. There is certainly logic behind their reasoning but at the same time it is a difficult and competitive market with some interesting challenges around differentiation and adoption. Challenges Phil Willcot was well versed in the challenges MD were going to face, relying on his experience to know that the process of selling e-auction software to organisations was demanding. The sales process was certainly going to be one major challenge, as there could be a little in the way of a proof of concept or a trial, due to the time and resource required to run a successful e-auction. Traditionally the cost of sale for these types of solutions is very high. However, a solution sold at a commoditised price level cannot afford a high sales cost. MD would have to modernise and streamline their sales process. Phil broke the sales and marketing strategy down into the constituent elements. Firstly there was lead generation. Their best bet was to market the software very clearly on the web, 46 outlining the benefits and the USPs. The website could be supplemented by other lead generation activities such as webinars, seminars, viral marketing campaigns, cold calling, email rushes, sending hand-signed letters, SEO, networking through social media as well as attending events, paid advertising and so on. The leads would then be qualified with the realistic desired outcome being the arrangement of a demonstration, preferably over the web due to the limited MD resource, but also face-to-face. Once a successful demonstration was carried out, it would be over to the sales process to sign up the customer by encouraging them to register on the website and make the purchase. Herein was their challenge, as there was no firm hook, for example, that would be provided by a managed auction activity first which would demonstrate the potential ROI of e-auctions. The Pay-As-You-Go and credit-based approach allowed the potential customer to make the purchase on their own terms. Without a monthly subscription, there would be no recurring revenue, yet at the same time that was also one of MDs competitive advantages (although the Annual licence with the ability to collate quotes as a mini RFQ system would create a recurring revenue stream). Furthermore the transparent price levels did endanger the opportunity for further negotiation. If a prospective customer was not attracted by those prices prior to having any discussion on the benefits or return on investment, it would be more difficult to engage them in the sales process. If, however, the price was attractive to them as they understood the benefits, the negotiation aspect would be negated and the sales process should be a lot more efficient. Phil did wonder whether improvements could be made in this area, both for MD and for the prospective customer who may not be familiar with a credit-based system. The other important consideration of the sales process is who are they selling to? MD had listed several key target markets but developed a brand that had a broad focus, essentially aiming at any company or individual who was looking to buy or sell something for over 100,000. Whilst it could be advantageous to keep the spectrum wide, there are also advantages in addressing a niche client base or industry, such as aerospace or electronics, to help establish some traction and brand recognition to re-invest in other areas. Phil wondered whether MD would be best investing their time and energy into creating a leading e-auction brand in one specific industry. Phil also considered the typical objections from a potential customer against using e-auction software to run their own events and came up with the following list, although he knew it was not exhaustive: E-auctions are too price-focused, where in reality companies seek to find the best value. Such an example would be buying a cheap kettle for 5 that breaks after a year or buying an expensive kettle for 30 that lasts a lifetime. E-auctions hurt supplier relationships as it leads to an erosion of their margins hence a degradation of the level of service and flexibility that they offer. It may be hard to convince suppliers to actively take part in e-auctions, particularly the incumbent suppliers, as they do not welcome such high levels of competition. Buyers may not have sufficient spend categories for an e-auction. Reasons may range from: o Spend levels are too low, o there may be no available specifications for the goods or services, o there may not be anyone else in the market who can supply such goods or services, 47 o the goods or services are far too strategic to the company to take to the open market, o the spend categories are tied up in lengthy contracts, etc. Buyers simply do not have the experience, resource or capability to run their own eauction. Without a capable purchasing team, the e-auction will not be a success and will therefore not be adopted. There is a risk the buyer may not achieve a return on investment. In particular, that risk lies with person who decided to run the e-auction. Phil compared the MD offering to the objections above and noted some short-comings. Clearly some objections to e-auctions would be extremely difficult to overcome, whereas perhaps others could be mitigated by a few simple strategies. Phil also noted that the list above would be the objections that a customer would mention out loud. There would be other objections that would prevent a sale yet would not be revealed at a meeting. One that he had personally arrived at was that if his alternative approach to negotiation involves dealing directly with the incumbent supplier and he achieves the predefined savings target from this, what motivation would he have in complicating and extending the process to be an e-auction for the sake of extra savings that he would not personally gain from? Furthermore, if he achieves excellent savings in Year 1, what is left for Year 2 and Year 3? Ask this question to the Financial or Managing Director and the answer would categorically be get those extra savings in now. However, MD was not necessarily conversing to their customers at the board level, due to their low price level, and so their marketing may need to be more embracing than simply about the bottom line. In the past some companies, such as Oracle and WhyAbe (part of Source one), have offered e-auction software for free, based on the firm reasoning that the software acted as a lead generation tool for them to offer their consultancy services and other solution packages. The free software had a very low uptake, mainly from its the poor design and performance, as well as the general distrust from the market in investing time and resource into something that is free, as it would have little or no support, the plug could be pulled at any moment and they might be bombarded with sales calls from prospectors asking them to upgrade and try other services. Also Source One would not want to detract from it managed auction services. As MD has no service provision, Phil contemplated whether their business model could be destroyed by a better marketed and more capable push by these companies, and others, into offering free e-auction software. However, that would affect the market to such a huge extent that it would be highly unlikely. There are also some other very professional on demand solutions out there from companies like Ketera and Ariba. However, Ketera counter balance their low price offering for the buyers to use their software by charging the suppliers a fee instead. This can exacerbate the objections as suppliers now have to pay to use something they dislike, plus they factor the costs of taking part into their final offer to their customer, which means the customer gets a worse deal. Ariba have also started to offer an on-demand solution but it is too complex as it tries to incorporate every possible feature, plus it has many costly add-ons. Both these examples provided Phil with some very important lessons and would clearly be worth exploring further, particularly how and if Ariba make a success in the SME market. 48 Phil also wanted to differentiate MD from the traditional boutique consultancies, as this was where a large proportion of the e-sourcing market value lay.

Infrastructural compatibility and maturity strategy:

a) With regard to scaling up into a global multi-national company with headquarters in Bristol, getting rid of cost-based operations, is there a specific organisation structure that could optimally enable MD to be more responsive to client expectations in a complex relationship arrangement?

b) How would Market Dojos knowledge management strategy need to be changed from that of a cost-based arrangement to fit with its new organisation structure as recommended by you in 3(a) above? For instance, for MD to be successful could require the km strategy to include:

(i) link km strategy to business strategy that then brings about strategic alignment;

(ii) foster a culture that encourages collaboration and knowledge sharing to fit with staff and their cultural orientations;

(iii) underpin all the activities of Market Dojo with information systems that enables sharing knowledge,

(iv) collaboration and searching for knowledge.